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ROI (Return on Investment)

What is ROI? - Return on Investment

The term ROI is the acronym of the English expression Return On Investment, which is translated in Spanish as retorno de la inversión. ROI is an economic KPI that lets us know the profitability obtained from a project, investment, marketing campaign, etc.

Put more simply, ROI tells us how much has been generated for every euro invested in, for example, an email marketing campaign. The relationship between the money invested and the money generated by that investment.

1. How to calculate or measure ROI?

Calculating ROI is not difficult, you can use this simple formula:

ROI = ((Ingresos - Gastos) / Gastos) x 100

Let’s take an example, where we have made an Ads campaign worth 1,650 euros (total cost of time invested, cost of the campaign in Ads, payment to the graphic designer who creates the design and the copywriter who creates the texts), and thanks to it we have achieved sales of 9,500 euros.

ROI = (9.500 - 1.650 / 1.650) x 100

Therefore, for every euro spent, we have made 4.75 euros (4.75:1 ratio). And in percentage terms, a 475.75% return on investment.

It is estimated that, in digital marketing campaigns, an acceptable ROI is between 4:1 and 6:1, i.e. for every euro invested, between 4 and 6 euros are earned. Achieving a ratio of 10:1 is considered a great result. If the result is lower than this data (less than 4:1), we can say that the digital marketing action has much room for improvement.

  • Revenue. Revenue is understood as the money collected from the sales generated by the campaign.

ROI can be calculated more precisely by area, for example by taking the money obtained in a campaign and counting only the sales generated by email marketing campaigns (only the sales that came through that channel, separating them from the total obtained).

  • Expenses. In this case, we are referring to all the expenses that had to be covered for the campaign to be viable and to be carried out.

Here you need to be as precise as possible so that the ROI obtained is as realistic as possible. To do so, you must take into account, proportionally, aspects such as: staff costs (hours invested), the cost of running the ads on the chosen platform, website hosting, outsourced staff, etc.

2. The importance of ROI

No one can deny that return on investment is a vital metric for businesses to be able to measure whether they are on the right track or not. Knowing the ROI is also of vital interest in several respects:

  • It helps the marketing department to set real goals and objectives.
  • By analyzing the ROI of different actions, it is much easier to improve the ROI generated in subsequent campaigns.
  • It is an indicator of quality that shows how much time investments need before they deliver a return.
  • It lets you know whether the viability of an investment or project was as expected.
  • By tracking it, you can know the status of an investment/campaign in real time.

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